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Outlook: Bonds

Trendline support to hold and a new high follows

November 11, 2005

Chart of outlook for Australian bonds as at 11 Nov 2005

AUS 10yr bond futures returned to trendline support last week and raising the question: will the support hold?

The minor time "vibration" has bonds on a downward path for another couple of months. The main time "vibration" does not rollover until the middle of 2006. The two previous vibrations ended with higher lows, but that is no guarantee that the current vibration will repeat the pattern. The basic trend pattern is upwards while prices hold above 94.175, so prices have a reasonable chance of starting a new rally within a couple of months.

We have probably seen the low at 94.490. However, the next 2 months may result in range-trading leaving it till early 2006 for a new rally to become evident.

The longer-term trend pattern is also upward since the 2000 low, so a rally through 95.030 will open the way for a new high. The action since 2000 appears to be forming a rising wedge pattern. That pattern fits nicely with the upward trend from the mid-1980's. Any level above 95.440 will be sufficient for that rally.

A drop through 94.490 will increase the odds for the current decline to extend till the middle of 2006. It will probably test the 2002 low of 93.350.

But I like the idea of the rising wedge.

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